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Frequently asked questions 

Strata building bond and inspections scheme 

 

Strata building bond and inspections scheme overview 

What is the Strata building bond and inspections scheme? 

The Strata building bond and inspections scheme has been introduced as a way to rectify defective building work early in the life of new high-rise strata buildings.

From 1 January 2018, developers must lodge a bond of 2% of a building's contract price with NSW Fair Trading for residential and mixed-use high-rise strata buildings of 4 storeys and over.

The building bond can later be used to pay for the costs of rectifying any defective building work.

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Why was the scheme introduced? 

The scheme ensures there is a clear process to motivate developers and builders to minimise any building issues in new residential high-rise buildings and make sure any defective building work is readily identified so it can be rectified promptly and cost-effectively.

The scheme aims to minimise the impact of defective building work on owners of units in new high-rise strata buildings.

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Is the strata building I live in affected? 

No. The scheme only applies to new construction of high-rise strata buildings, 4 storeys or more, where the developer and builder sign a contract from 1 January 2018, or if there is no contract, when building work starts from 1 January 2018.

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I have signed a contract to purchase a strata unit 'off the plan'. Does the scheme affect my unit? 

Firstly, check the height of the building as the scheme only applies to building's that are 4 storeys or higher.

If the construction contract between the developer and the builder was signed before 1 January 2018, the scheme does not affect you.

The scheme will only apply if the construction contract between the developer and builder is signed from 1 January 2018. You can ask your solicitor or conveyancer to check when the construction contract was signed.

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What does 'part' of a strata scheme mean? If a strata building is 90% retail and only 10% residential, does the scheme only apply to the residential part? 

The Strata building bond and inspections scheme applies to all building work that is part of the strata scheme, including those with a mix of retail and residential use (mixed use).

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Building inspectors 

What does a building inspector do? 

A developer must appoint a building inspector to complete the inspection process and produce reports. To appoint the building inspector, the developer must have the approval of the owners corporation. If the owners corporation does not approve the developer's proposed building inspector, the Building Bond Secretary will arrange the building inspector.

The building inspector must be a member of a Strata Inspector Panel, which is provided by authorised bodies. Inclusion on a panel means that these bodies have determined that the building inspector is suitable to perform building inspections and produce reports.

What is the inspection process? 

There is a two-stage inspection process.

The first inspection, known as the interim inspection, takes place between 15 and 18 months after the building work has been completed. An interim report is produced by the building inspector.

The builder is responsible for rectifying any defective building work identified during this inspection that is included in the interim report.

The second inspection, known as the final inspection, takes place between 21 and 24 months after the building work has been completed. This inspection assesses whether the defective building work identified in the interim inspection has been rectified. The final report identifies any unrectified defective building work.

If not rectified, the amount secured by the building bond can then be used to pay the costs of rectifying any defective building work.

If there is no defective building work, the bond is returned to the developer.

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How do I become a building inspector for the Strata building bond and inspections scheme? 

A building inspector is qualified to undertake inspections and produce reports if they are a member of a Strata inspector panel. The inspector must be a member of a strata inspector panel that may be established by any of the following:

  • Housing Industry Australia
  • Master Builders Association of New South Wales
  • Australian Institute of Building
  • Australian Institute of Building Surveyors
  • Australian Institute of Building Consultants
  • Institute of Building Consultants Inc
  • Engineers Australia
  • Australian Institute of Architects
  • Association of Accredited Certifiers

Each of these bodies will have their own processes and membership criteria to determine if a person is competent to perform building inspections and produce reports for the purposes of the scheme.

This is a co-regulatory approach. The listed body will determine if the qualified person will be included on their strata inspector panel. Inclusion on a panel qualifies the person to be a building inspector. Any enquiries about becoming a member of a strata inspector panel should be directed to that member organisation.

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How are the building inspectors publicised in the various strata inspector panels? Does Fair Trading have the list? 

The authorised bodies listed above are responsible for the management and administration of their strata inspector panels. Each strata inspector panel will maintain a list of their qualified persons, which may be available on their website.

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I am a member of a listed organisation that can provide a strata inspector panel. How do I become a building inspector for the Strata building bond and inspections scheme? 

If you are already a member of one of the listed organisations that has a strata inspector panel, you should direct your enquiry through your membership contact. They will advise you of their requirements to be a building inspector for the scheme.

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How do I become a building inspector that is appointed by the Secretary to conduct inspections and provide reports for the Strata building bond and inspections scheme? 

The Secretary will select a building inspector from one of the strata inspector panels.

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Who pays for the building inspectors? 

The developer must pay for all building inspector costs, such as the costs of obtaining an inspection and report, even when the inspector was appointed by the Secretary. The parties to the inspection agreement are the developer and building inspector only.

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If specialist consultants are engaged in addition to the building inspector, how are they paid? 

The appointed building inspector may engage additional specialists to inspect and report on the areas outside of the building inspector’s competencies. The specialists do not have to be sourced from a strata inspector panel. Any reports produced by an additional specialist are to be included in, and form part of, the interim and final reports. The cost of the specialist consultants are included in the building inspector’s costs and should be considered when the developer and building inspector discuss a costs agreement.

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If the Secretary appoints the building inspector, how will you ensure that costs are contained/minimised? 

The costs of a building inspector appointed by either a developer or by the Secretary should be the same, irrespective of whether the building inspector is appointed by the Secretary. They will be performing the same inspection and reporting duties. The parties to the inspection agreement are the developer and building inspector only.

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The building bond 

What happens with the bond when there is defective building work? 

The developer lodges the building bond with NSW Fair Trading (the Building Bond Secretary) before the occupation certificate is issued for the building. The bond is then held until the mandatory inspection process has been completed.

If defective building work is identified and not rectified before the final inspection, the bond can be used to pay the costs of rectifying any defective building work.

If there is no defective building work, the bond is returned to the developer.

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How is the building bond calculated when the developer and the builder are the same and there is no written contract? 

Where the developer and the builder are the same, connected and/or there is no written contract, the contract price is determined by a quantity surveyor who is appointed by the Secretary. The quantity surveyor must be a member of the Australian Institute of Quantity Surveyors or the Royal Institute of Chartered Surveyors (and is not connected to the builder/developer).

The cost report prepared by the quantity surveyor must include the costs of the following and be accompanied by a certificate by the quantity surveyor that he/she has inspected the as-built drawings and specifications for the strata plan:

  • construction and fit out costs, not including appliance and prime cost items
  • demolition and site preparation
  • excavation
  • car parking
  • costs for the common property that is included in the property plan, including landscaping, pools, fencing and gates
  • professional fees
  • taxes applied in the calculation of the as-built construction.

For this scheme, the contract price for building work is the total price paid under all applicable contracts for that building work as at the date of issue of any occupation certificate (not the contract price before construction commences). The amount secured by the building bond is determined at this time.

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Is all work captured in a contract included to determine the bond? For example, excavation work? 

All work that is conducted in relation to the contract is captured to determine the bond amount. This includes, but is not limited to:

  • construction and fit out costs (not including appliance and prime cost items)
  • demolition and site preparation
  • excavation
  • car parking
  • costs for the common property that is included in the property plan, including landscaping, pools, fencing and gates
  • professional fees, and
  • taxes applied in the calculation of the as-built construction.

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When does the building bond need to be lodged with the Secretary? Is it before or after the occupation certificate is issued? 

The developer needs to lodge a building bond of 2% of the contract price for building work with the Secretary. The building bond must be lodged before the occupation certificate is issued. A penalty may apply if a developer does not lodge the building bond with the Secretary before the occupation certificate is issued.

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If a project is being built in stages (eg. 4 towers), do I need to lodge a bond for each stage, especially if one stage is completed before another? 

Yes, if the development is known to be a staged development, one bond per stage (project) should be lodged. You will need to register each stage as a separate project in the Strata building bond and inspections scheme online portal (SBBIS online portal) and lodge a bond for each one.

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Can an entity other than the developer pay the bond? 

The developer is responsible for arranging for the building bond to be issued by an approved Authorised deposit-taking institution (ADI) or general insurer authorised to conduct new or renewal insurance business in Australia that is listed on the Register of ADIs or the Register of General Insurers maintained by the Australian Prudential Regulation Authority.

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What happens if the builder passes down his obligation to the subcontractors ie. for releasing the building bond? 

The developer, not the builder, is responsible for arranging the building bond and lodging it with the Secretary. The building bond will be kept by the Secretary for 2 years, at which time an owners corporation can claim against if for defective building work that has not been rectified, or released if no claim is made.

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If the owners corporation is claiming the bond, is this done by resolution at a general meeting of the owners corporation? 

Yes, the approval or consent of an owners corporation to claim the bond is to be given by a resolution of the owners corporation at a general meeting. A resolution at a meeting is to be determined by a simple majority. A developer or lessor of a leasehold strata scheme is not entitled to vote, or exercise a proxy vote, on a matter concerning building defects.

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Is the building bond handed over to the owners corporation at the first Annual General Meeting (AGM) with all of the other required documents? 

No, the original building bond is held by the Secretary for 2 years. At the end of the 2 years, an owners corporation can make a claim for the building bond  which can be used to pay for any defects. Any remaining money from the building bond will be returned to the issuer of the building bond, or released in full if no claim is made.

The only Strata building bond and inspections scheme documents to be handed over to the owners corporation at the first AGM are the interim and final reports.

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Other 

What can I do if I live in a strata building that is three storeys or less and there is defective building work? 

The first step is to raise this with your Strata Committee or Strata Managing Agent.

Buildings that are three storeys or less are covered under the Home Building Compensation Fund. You can find out more about the home building compensation cover on the State Insurance Regulatory Authority (SIRA) website.

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When is building work completed? 

Under this scheme, building work is completed when an occupation certificate is issued.

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Why do I need to upload so many documents through the SBBIS online portal, especially if there are changes to these documents? 

The documents that need to be uploaded to the online portal are required by law to be lodged at the time the building bond is lodged. At this time, the Secretary may need to determine the contract price for building work, as the contract price determines the building bond amount that must be lodged with the Secretary. The online portal allows documents to be uploaded in various formats, for example .doc, .pdf, .xls.

Documents can be uploaded and saved at any time in the online portal, but they should reflect the completed building before any occupation certificate is issued (not the start of the build).

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How does the Strata building bond and inspections scheme run in conjunction with the Home Building Act? 

Defects identified in the interim inspection and report of the building inspector are captured under the Strata building bond and inspections scheme. Identified defects should be rectified before the building inspector conducts their final inspection. The final report will identify if the defective building work has been rectified. If not, the owners corporation can make a claim on the building bond.

If any major defects are identified after the bond has been claimed/realised, the statutory warranties in the Home Building Act 1989 apply.

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Where can I find more information? 

There is detailed information on the Building bond page on the Fair Trading website.

You can also call us on 13 32 20 or email stratabond@finance.nsw.gov.au

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